India’s 36 million MSMEs account for a third of manufacturing output of the country. According to government data, MSMEs employ more than 80 million people.

GST Council chaired by finance minister Arun Jaitley is likely to announce a special package for micro, small and medium enterprises.(PTI File Photo)

The Goods and Services Tax Council (GST Council) chaired by finance minister Arun Jaitley is likely to announce on Friday a special package for micro, small and medium enterprises (MSMEs) that will, among other things, address the concerns of exporters, as policymakers explore ways to fix an unexpected slowdown in economic growth.

The package will also ease the onerous tax compliance requirements faced by these entities, a person familiar with the contents of the package said on condition of anonymity.

The package comes a day after Prime Minister Narendra Modi, while defending his government’s track record in managing the economy, said both demonetisation and the implementation of GST were structural reforms but that if “any sector needs temporary assistance” on account of these, “the government would” provide it. He specifically referred to exporters and small and medium enterprises.

Modi’s comments on Wednesday came at a time when the narrative about the economy has turned negative, triggered by the economy’s slowest ever expansion in three years during the quarter ended 30 June, and fanned by criticism of his government by former finance minister Yashwant Sinha and former disinvestment minister Arun Shourie.

There has been speculation about a relief package. On Wednesday, Bharatiya Janata Party president Amit Shah cut short a visit to Kerala to return to New Delhi. On Thursday evening, Shah and finance minister Arun Jaitley are believed to have met with Modi to discuss the economic situation. No details of that meeting or the package are available.

The package being considered by the GST Council, according to the person cited in the first instance, seems sharply focused on exporters and MSMEs.

The key elements include the option for quarterly filing of returns for small businesses, the suspension of the ‘reverse charge’ tax compliance mechanism for MSMEs till March, refund of taxes to exporters through an e-wallet and exemption from any retrospective enquiry into the previous value-added tax (VAT) regime tax matters, this person added.

Reverse charge refers to the requirement of large businesses sourcing supplies from MSMEs to deduct taxes from them and pay to the government. Normally, it is the supplier’s obligation to collect taxes from the buyer and pay the government.

Since large companies do not want additional compliance requirements for sourcing from MSMEs, these small entities stand to lose their business. MSMEs requested the government to suspend this requirement for some time. They also sought the option for quarterly filing instead of the present monthly filing norm.

India’s 36 million MSMEs account for a third of manufacturing output of the country. According to government data, MSMEs employ more than 80 million people. The government also wants to support exports, which reported a 10.29% jump in August to $23.8 billion from a year ago. The package for exporters is based on suggestions by the panel led by revenue secretary Hasmukh Adhia, another government official said on condition of anonymity.

On Wednesday, the finance ministry allowed small exporters—those with revenue less than Rs1 crore—to import goods without having to pay integrated GST (IGST) by furnishing just a letter of undertaking. Earlier, small exporters had to furnish a bond to avail of this facility. IGST is applicable on interstate trade and on imports of raw materials that exporters use. Currently, this facility is available only to large exporters.

“This will bring relief to small exporters (having export turnover of less than Rs1 crore) who were earlier required to submit a bond along with bank guarantee, which was resulting in procedural hassles and cash flow issues,” said Abhishek Jain, partner at consulting firm EY.

The Federation of Indian Export Organisations had sought GST refund for exporters based on GSTR-1 (the return relating to supplies) and GSTR-3B (a summary of transactions).

Central and state government officials met in New Delhi on Thursday to consider proposals to be placed before the GST Council on Friday. The council will also review the implementation of GST, which has come under criticism.